Doggy Treats is selling dog treats in a purely competitive market. Its output is 800 treats, which it sells for $10 a treat. At the 800-treat level of output, the marginal cost is $11, the average variable cost is $9.00, and the average variable cost is
$8.00. Should the firm increase output, decrease output, or not produce? Why? How should the firm determine that optimal level of output?
What will be an ideal response?
The firm should produce because at the current level of output marginal revenue or price is greater than average variable cost. The firm also should decrease output because at the current level of output marginal revenue or price is less than marginal cost. At the current level of output, the firm is still making a profit because marginal revenue is greater than average total cost, but the firm would maximize its profit if it reduced output to the point where marginal revenue equals marginal cost.
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Which of the following is a primary difference between price takers and price searchers that operate in markets with low barriers to entry?
a. The price searchers will maximize profits in the short run, but price takers will not. Price takers can only maximize profits in the long run. b. The price searchers will have to search for the price, while price takers will have to take the price determined in the market. c. The price searchers will be able to earn profit in the long run, but the price takers will not. d. The price searchers may be able to earn profit in the short run, but the price takers will not be able to do so.
Explain how a monopolist can increase profits by price discriminating. What are the conditions necessary for price discrimination?
What will be an ideal response?